Sberbank to VTB Help Fill $17 Billion Bank Lending Void

Herman Gref, chairman of OAO Sberbank, said in June the industry faces an “acute” shortage of long-term ruble funding. Photographer: Simon Dawson/Bloomberg

July 4 (Bloomberg) -- Russian banks are stepping in to make
up for a $17 billion hole in foreign loans to domestic companies
as the Ukraine crisis narrows options for financing.

Loans in dollars extended by international lenders slumped
to $7.9 billion in the first half of 2014, compared with $25
billion for the same period last year, according to data
compiled by Bloomberg. While foreign financing plunged,
corporate loans by Russian banks led by state-backed OAO
Sberbank and VTB Bank, increased 8.4 percent to 24.39 trillion
rubles ($712 billion) in the first five months of the year,
central bank data show.

Russian companies are seeing their financing options
shrink, with sales this year of foreign-currency bonds sliding
almost 80 percent, amid investor concern sanctions against the
country will be expanded over Ukraine. While local lenders are
picking up the slack, Herman Gref, chief executive officer of
Sberbank, said in June the industry faces an “acute” shortage
of long-term ruble funding.

“Many companies that had to refinance upcoming maturities
preferred to raise loans from state-controlled banks,” Denis
Perevezentsev, an analyst at Moody’s Investors Service in
Moscow, said by phone yesterday. “In the second quarter of
2014, in light of the worsening geopolitical situation and
potential sanctions, western banks became more cautious in their
work with Russian borrowers.”

Extra Cash

The specter of industry-wide sanctions for Russia over
Ukraine has quashed bond sales, stoked capital flight and forced
the central bank to stump up an extra $58 billion to ease the
cash crunch. Sentiment soured after President Vladimir Putin
annexed Ukraine’s Crimea region three months ago.

VTB’s press office declined to comment when contacted by
Bloomberg. Sberbank didn’t respond to a request for comment.

Companies faced limits on their funding from foreign
sources in March and April and looked for alternative sources of
financing, according to Alexei Simanovsky, first deputy chairman
at the central bank.

OAO Lukoil, Russia’s second-biggest oil producer, is
cutting spending to reduce dependence on international debt
markets and plans to build a cash reserve of $30 billion over
the next five years to guard against the risk of further
disruption to capital markets, billionaire shareholder Leonid
Fedun said in an interview last month.

Credit Facility

OAO Sibur Holding, the nation’s largest petrochemical
company, signed a two-year credit facility in April with
Sberbank for as much as 27 billion rubles to refinance short-term debt, according to a statement on the company’s website.

In February the company had asked banks to propose terms
for a five-year unsecured loan of about $1 billion, according to
three people familiar with the negotiations, who asked not to be
identified because the terms are private. The company’s press
office declined to comment when contacted by Bloomberg.

OAO Novolipetsk Steel doesn’t plan loans for refinancing
because market conditions “aren’t optimal” and the company has
“significant liquidity” to service its obligations, spokesman
Sergey Babichenko said by e-mail yesterday.

The ruble weakened 0.6 percent to 34.4965 versus the dollar
as of 8:09 p.m. in Moscow. The yield on Russia’s dollar debt due
March 2030 fell two basis points to 4.22 percent, paring its
increase this week to 13 basis points.

With the violence between pro-Russian separatists and
government troops unabated in Ukraine’s east, the foreign
ministers of Germany, France, Ukraine and Russia agreed at a
meeting in Berlin two days ago to work for a comprehensive
cease-fire by July 5.

“The current situation was caused by and is largely linked
to the situation with Crimea and Ukraine,” Dmitry Poliakov, an
analyst at Sberbank Investment Research in Moscow, said by
phone. “That’s why Russian banks took on the burden of
financing the real sector of the economy.”